Warren Buffett’s Ten Rules for Winning

While enjoying a nice lunch with my Son at a Minneapolis Jimmy John’s sub shop this weekend, I saw this “WARREN BUFFETT’S TEN RULES” sign tacked to the wall.

Unfortunately, I wasn’t able to take a glare-free or hi-res photo, so let me list out these Rules below (with my comments in bold Italics):

No. 1:  REINVEST YOUR PROFITS – When you first make money, you may be tempted to spend it.  Don’t.  Instead, reinvest the profits.  Buffett learned this early on. In high school, he and a pal bought a pinball machine to put in a barbershop. With the money they earned, they bought more machines until they had eight in different shops. When the friends sold the venture, Buffett used the proceeds to buy stocks and to start another business. No surprise that this is Rule #1.  He is the greatest investor of our time and one of the reasons is because he followed his own advice here.

No. 2:  BE WILLING TO BE DIFFERENT – Don’t base your decisions upon what everyone is saying or doing. When Buffett began managing money in 1956 with $100,000 cobbled together from a handful of investors, he was dubbed an oddball. He worked in Omaha, not on Wall Street, and he refused to tell his partners where he was putting their money. People predicted that he’d fall, but when he closed his partnership 14 years later, it was worth more than $100 million.  In short:  Don’t be afraid to be contrarian.  Time and time again, we see tremendously successful investors, businessmen, entrepreneurs take a contrarian approach.  Wasn’t it John D. Rockefeller who said the best time to buy is when there’s “blood in the streets”?

No. 3:  NEVER SUCK YOUR THUMB – Gather in advance any information you need to make a decision, and ask a friend or relative to make sure that you stick to a deadline. Buffett prides himself on swiftly making up his mind and acting on it. He calls any unnecessary sitting and thinking “thumb-sucking.”  Buffett invested $5 Billion in Goldman Sachs during the worst moments of the 2008 financial crisis when Wall Street appeared to be melting down.  He committed this money in a 15 minute (no thumb sucking here) phone call with Goldman CEO Lloyd Blankfein.  Result?  A $10 Billion profit in 30 months.

No. 4:  SPELL OUT THE DEAL BEFORE YOU START – Your bargaining leverage is always greatest before you begin a job – that’s when you have something to offer that the other party wants. Buffett learned this lesson the hard way as a kid, when his grandfather Earnest hired him and a friend to dig out the family grocery store after a blizzard. The boys spent five hours shoveling until they could barely straighten their frozen hands. Afterward, his grandfather gave the pair less that 90 cents to split.  This advice holds not only for jobs, but also for any kind of negotiation, investments, partnerships, JVs, etc.

No. 5:  WATCH SMALL EXPENSES – Buffett invests in business run by managers who obsess over the tiniest costs. He once acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He also admired a friend who painted only the side of his office building that faced the road.  I think the lesson is also that the devil’s in the details, and that little things mean a lot. The best organizations have a handle on all of the nuances and details of their operations.

No. 6:  LIMIT WHAT YOU BORROW – Buffett has never borrowed a significant amount – not to invest, not for a mortgage. He has gotten many heartrending letters from people who thought their borrowing was manageable but became overwhelmed by debt. His advice: Negotiate with creditors to pay what you can. Then, when you’re debt-free, work on saving some money that you can invest.  If our country had followed this advice, we wouldn’t be in the financial pickle we’re in now, that’s for sure.  Seems like Buffett is not only saying to limit what you borrow, but also very simply to be disciplined, and that’s a key success driver

No. 7:  BE PERSISTENT – With tenacity and ingenuity, you can win against a more established competitor. Buffett acquired the Nebraska Furniture Mart in 1983 because he liked the way its founder, Rose Blumkin, did business. A Russian immigrant, she built the mart from a pawnshop into the largest furniture store in North America. Her strategy was to undersell the big shots, and she was a merciless negotiator.  This is my favorite of the Buffett Rules.

No. 8:  KNOW WHEN TO QUIT – Once, when Buffett was a teen, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with close to nothing. He felt sick – he had squandered nearly a week’s earnings. Buffett never repeated that mistake.  The only one making money at the racetrack is the owner.  I bet he’s happy he learned this lesson at a young age.

No. 9:  ASSESS THE RISKS – In 1995, the employer of Buffett’s son, Howie, was accused by the FBI of price-fixing. Buffett advised Howie to imagine the worst- and best-case scenarios if he stayed with the company. His son quickly realized the risks of staying far outweighed any potential gains, and he quit the next day.  Continually assess current and future risks and mitigate those you can to help shape and control your future.

No. 10:  KNOW WHAT SUCCESS REALLY MEANS – Despite his wealth, Buffett does not measure success by dollars. In 2006, he pledged to give away almost his entire fortune to charities, primarily the Bill and Melinda Gates Foundation. He’s adamant about not funding monuments to himself – no Warren Buffett buildings or halls. “When you get to my age, you’ll measure your success in life by how many of the people you want to have love you actually do love you. That’s the ultimate test of how you lived your life.”  What a great definition of “success.”  After all the effort, the blood, sweat and tears, and the battle scars from the business and investment world, the Master defines his success so simply and elegantly.

I can’t help but think that the world would be a better place, and the economy would be in much better shape if we all followed Warren Buffett’s Rules.

Hopefully, President Obama will continue to seek Mr. Buffett’s sage counsel and (I know this is a stretch) convince him to become our next Treasury Secretary when Tim Geithner (my Mandarin language TA at Dartmouth) retires.

Thanks for reading, and please leave a Comment below.  Which Buffett Rule is your favorite one? What kinds of things do you think Mr. Buffett would do if he were Treasury Secretary?

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